guru Peter Lynch advised investors to buy stock in the companies whose products or services they used themselves. Economists are increasingly focusing their analysis of inflation on products and services they know their countrymen use. Inflation is rising and people can see it more clearly in their lives than in the statistics government agencies produce. the indicators used to measure it vary widely.
The good news is that measurements are becoming more accurate and honest because they are increasingly tied to real world consumption than to theoretical assumptions. The bad news is that those measurements are showing prices rising while employment and wage growth are not. The problem - for Brazilians, Americans, Chinese and Ukrainians - is that the inexorable rise in prices suggests another economic slowdown may be coming if compensation and job growth cant produce the income to pay for them. JL
Iuri Dantas reports in Business Week:
"If you're getting a bikini wax in Brazil, you'll likely find that the cost is rising. And if you're an economic policy maker, you'll likely see that as a problem, since the bikini wax is one of the items the Brazilians track to figure out inflation.
As with services ranging from car repair to dentistry, the price of waxing is going up in one of the world's most important emerging markets. Inflation is moving above the government's target and may force Alexandre Tombini, the central bank president, to prolong his policy of interest-rate hikes. Price increases for services, which make up 24.1 percent of Brazil's benchmark inflation index, outpaced all other categories in the past two months, according to data released on May 11 by the central bank.
They rose 8.57 percent in the year through April, the fastest pace in at least 15 years. "Services will continue to be the main villain of inflation," says Fernando Fix, chief economist at Votorantim Wealth Management in São Paulo. "Domestic demand is too strong."
That includes demand for bikini waxes, which are often considered a necessity, says Elzimar Siqueira, former owner of a beauty shop and now head of administrative affairs at the Syndicate of Women's Beauty and Hairdressing Institutes of Rio de Janeiro. "We have summer all year, we're always wearing bikinis and miniskirts," she says. At the Imaculada Hair and Makeup shop in Brasilia, owner Alessandra Rita de Arruda Lopes says she's raised the price to 35 reais ($21.63) from 30 reais. The average price of the depilation procedure rose 12.4 percent in the year through April, the national statistics agency says. A bikini wax at J. Sisters in Manhattan costs $75.
Consumer price increases in Latin America's biggest economy breached the government's 6.5 percent target ceiling in the year through April for the first time since June 2005. The benchmark interest rate has now reached 12 percent, and economists expect the central bank to boost it to 12.5 percent by year-end, a recent survey showed.
Gross domestic product per capita reached a record $10,813 last year, after the economy grew 7.5 percent, the fastest pace in more than two decades. Such growth boosts demand for services. Also contributing to higher prices is a tight labor market, which drives wages up. Wages may be bumped up again after collective bargaining late this year and next, says Constantin Jancso, an economic analyst at São Paulo-based HSBC Bank Brasil. "Negotiations with metalworkers and bankers begin in the third quarter," he says. "I wouldn't be surprised to see increases of 10 percent."
Prices of 20 of 41 services monitored by the central bank accelerated in April from March. Oil changes and car cleaning prices rose 18.25 percent in the year through April. Hotels increased prices by 14.03 percent.
Price hikes in Brazil are also spurred by indexation, in which past inflation is used as a benchmark for raising prices. The minimum wage, for example, is computed annually by adding the previous year's inflation to economic growth from two years back. In 2012 the minimum wage will likely go up more than 13 percent.
Higher wages are one reason beauty shop owner Lopes is raising prices. Meal vouchers, cosmetics, and the cost of "depi rolls," which are used to spread the wax for depilation, are also rising, she says. "Some clients are coming less frequently for haircuts because of the higher price," she says. "But not for waxing. Brazilian women will never stop getting waxed."
The bottom line: Services from bikini waxes to car repairs are getting pricier in Brazil, prompting fears of higher inflation and higher wages.
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